Wednesday, April 24, 2024

IRH Set to Transform Zambian Mining Industry

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New Mopani Owners have attractive investment Business Model

By Mwansa Chalwe Snr

There was jubilation on the Copperbelt on 21 March,2024, when President Hakainde Hichilema handed over Mopani Copper Mines (MCM) to the United Arab Emirates (UAE) company International Resources Holdings(IRH). There was almost unanimous praise by stakeholders including Mine unions, Ex-miners association and Mine Suppliers Association on the Copperbelt about government finding an investor for Mopani Mines which have been struggling since 2021 due to lack of capital.

“In partnership with International Resource Holdings (IRH) from Abu Dhabi, we are embracing a new era for Mopani Copper Mines. This moment, long awaited by our citizens, is not just a handover but a meticulously negotiated partnership that represents mutual respect and equitable benefits,” President Hakainde Hichilema said during the handover ceremony in Kitwe.

However, there has been some disquiet in certain quarters on the choice of United Arab Emirates’s International Resources Holdings (IRH)’s subsidiary Delta Mining Limited as a strategic equity partner by Zambia’s ZCCM-IH in December,2023.The borne of contention of most critics is that the company was not on the publicly known short list as at end of June 2023.The list was made up of four companies – China’s Zijin mining, Norinco Group, Sibanye Stillwater and an Investment vehicle owned by Ex-Glencore Officials. It is understood that IRH only submitted their bid in October,2023.

In order to establish the truth about IRH and the deal, as a writer of researched and evidenced based Op-Eds – before writing a commentary article on the deal- I decided to investigate who IRH was and how they were able to beat the rest of  its competitors, despite being an apparent late entrant.

I started establishing facts which were not publicly known, very quickly. According to my very reliable and informed sources, the IHR team of officials had made several trips to Zambia throughout 2023 in their private jet. And they were quietly carrying out their due diligence investigations on Mopani Mines. They held several fact-finding meetings with relevant Zambian officials including ZCCM-IH and the Industrial Development Corporation (IDC).

And using my technical skills as a Chartered Accountant, I carried out an analysis of the numbers in the deal which informed my final opinion, when combined with the qualitative factors that the deal entailed.

The IHR deal

In order to win the bid, International Resources Holdings offered to invest $1.1billion in Zambia’s Mopani Copper Mines (MCM) in return for 51% ownership of the business. The funds were to be used to fund Mopani’s production expansion plan, provide working capital and pay off part of $1.5billion debt owed to the previous owner Glencore.

“$620 million will be provided in the form of new equity capital in return for 51% stake in MCM. Approximately $400milion will be provided as a shareholder loan that will be used as part of the consideration to settle the original Glencore transaction debt of $1.5 Billion plus interest,” ZCCM-IH said in a statement.

The bid was also viewed to be attractive by Zambia because it entailed the termination and restructuring of the unfair Glencore loan deal.

“This transaction has allowed us to unwrap this python of the $1.72 billion of debt on Mopani and we have brought the figure to somewhere around $576million,” President Hichilema disclosed at the handover of the mine to IRH.

Apart from the financial aspects of the bid, IRH undertook not to retrench any of the MCM employees as well as support social obligations like sponsoring sports activities and maintain health facilities.

President Hichilema’s vital Role in the Deal

On the basis of the conversation with IHR’s Chief Global Strategist, President Hichilema, as Zambia’s Chief Marketing Officer, played a crucial role in the deal due to his close relationship with United Arab Emirates (UAE)President Sheikh MOHAMMED BIN ZAYED.

In January,2023 on the sidelines of the Abu Dhabi Sustainability Week (ADSW) conference, President Hakainde Hichilema held a meeting with the UAE President. During the meeting, he promised to open a permanent Embassy in the UAE to address the increased trade and investment opportunities between the two countries in order to deepen the existing relationship. And since then, a Consulate Office – a precursor to the establishment of the embassy – has since been opened and is headed by Professor Nkombo Gerry Muuka as Consul General.

In that part of the world, personal relationships come first before business. President Hichilema has developed a very good relationship with President Sheikh MOHAMMED BIN ZAYED and this has resulted in the UAE to make a decision to invest billions in Zambia. And more multi million investments in railway infrastructure, power, fuel and other sectors are coming.

It is not surprising that he was very elated on the 21 March, 2024, when he officially handed over the Mopani Copper Mine (MCM) to the new investor, International Resource Holding [IRH] through its Chief Executive Officer Ali Alrashdi. It was a personal achievement.

“To day marks a pivotal occasion for the Copperbelt and Zambia as a whole, bringing a breath of fresh air, a new start for Mopani Mines. This is a new chapter, a new beginning for the economy of the Copperbelt and the economy as a whole. We are going to see copper production increasing which will result in the creation of job opportunities for the resident of Mufulira and Kitwe and surrounding towns,” He said. “We express our profound gratitude for the re-launch of Mopani Copper Mines in partnership with our new joint venture partners, International Resource Holdings (IRH) from Abu Dhabi. This moment, long awaited by our citizens, is not a handover but a meticulously negotiated partnership with IRH that represents mutual respect and equitable benefits. Our citizens will retain a 49% shareholding through ZCCM-IH, affirming our commitment to national benefit.”

President HH also paid a glowing tribute to the ruler of UAE for facilitating and allowing IRH to have a smooth partnership with Zambia in a mutually respectful partnership.

The President HH has been impressed by the rapid development of the UAE. He believes that there was a huge lesson for countries such as Zambia on how it can improve the quality of life of citizens using local resources while tapping on outside capital, skills and expertise. He wants to benchmark Zambia to UAE in resource utilization for development and in the governance and management of State Owned Enterprises which have positively contributed to the UAE.

IRH Investment Business Model

In a chat at their prestigious offices in Abu Dhabi, when asked about why IHR made such a generous bid for MCM, Sib Ali, the Chief Global Strategist said their way of doing business is different from their competitors, and that is why they won the bid.

” We are not entirely motivated by making money, as we have a lot of it already. While we want to make profit, we are also motivated by our desire to transform the societies that we invest in. When we build a school, it should be of a standard that I should be ready to take my own children to”, he proudly stated.

The view expressed by Mr. Ali was echoed by his boss, IRH Chief Executive Ali Alrashdi during the handover of Mopani Mine by President Hakainde Hichilema in Kitwe on the 21st of March,2024. He said IRH would redefine industry standards, create value for stakeholders and make a positive impact on the economy.

“This Partnership is not just about business, it is about people, communities and sustainability,” he said.

The IRH Chief Executive further stated that they have ambitious and innovative plans for MCM, in order to bring meaningful change in the mining industry. They intend to collaborate with their Zambian partners to ensure that there is transparency through out the mining value chain from mining the copper up to when the money goes into the bank.

They also intend to establish an Artificial Intelligence (AI) exploration platform in Partnership with a named Zambian Counterpart, in order to carry out extensive exploration for minerals. They do not intend to be 100% owners of any venture that they form in Zambia unlike other mining investors.

And one of the most striking revelation that Mr. Ali made, during the chat, was that IHR has started the process of establishing a special purpose vehicle with their Zambian Partners, which they will use to jointly market the copper mined at Mopani mines. There say there will be no hidden production and sales figures in their operations . Zambians ought to understand that in mining and commodity business, the bulk of the money in the value chain is made during marketing the marketing phase. And smart Botswana long realised this. And if as a country, you are not involved in the marketing your resources – even partially- and merely depending on production by way of royalties and income taxes which are even never paid or grossly understated, then you should know that you are being ripped off and not sufficiently benefiting from your natural resources. And you will never develop using your natural resources like Gulf Cooperation Council countries and Botswana have done. 

The other unique feature of IRH’s modus operandi is the utilization of local labour. They have retained the current Chief Executive, Charles Sakanya, as well as almost all the employees at Mopani Mines. Mr. Ali said that when they took over MCM, they found that Zambian workers were technically qualified and experienced, and all that was needed was to motivate them and introduce a consultative culture of management so as to increase their productivity.

After investigating and analysing the facts on the ground, it is clear that what must have won over the Zambian decision makers on the Mopani Copper mine deal was IHR’s business model for the management of the asset, their long-term outlook and sensitivity to the mining community, apart from the attractive financial terms. It is possible that their competitors could not possibly match their offering.

And one can only conclude that those doubting the credibility of IRH, have not researched sufficiently, and doing it out of ignorance. IRH’s parent company International Holding Company (IHC)’s market capitalisation as in March,2024 is $238.64 billion, and is currently one of the world’s most valuable companies.

Conclusion

For any fair minded person, the Mopani deal is the best deal that Zambia has ever had with any foreign mining company in the last 30 years. It should be the benchmark going forward. Zambia will benefit much more from MCM than any other mining house. The deal should be supported and celebrated by all well meaning Zambians, as it is in national interest.

Zambia has 49% shareholding which is the highest in any mining house. The potential benefits from the deal are multiple. They will be more royalties, income tax, dividends, jobs and higher inflows of foreign exchange. And given the expected transparent and joint marketing of copper, there will be no scope for illicit financial flows as it is has been with other mines, where they understate production and are involved in transfer pricing schemes.

Zambians are now genuine Co-owners of a mine, and are involved in its management. What can be better than such a deal? In a few years’ time, IRH is certainly set to transform the mining industry in Zambia, and become the Gold standard for all mining houses.

The writer is a Chartered Accountant, Author and an independent financial analyst and economic commentator. He is also the Founder of Prosper Knowledge Solutions Ltd, a virtual Knowledge and Strategy firm. Contact: [email protected]

6 COMMENTS

  1. Enough talk….lets just wait and see results not starting useless commentary…hopefully they won’t start shifting goal posts once things start going South

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  2. Slave mentality. Always waiting for foreigners. Zambia will make so many countries rich while its citizens will be languishing in poverty. When is HH ending the tax holidays to mines?

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    • It’s not the last mine in Zambia. Demonstrate your “non-slave mentality” by starting a mining business now. After all, you’re not banned from applying for a mining licence. Please note that slaves were toiling against their will and not choice. How can inviting someone to invest in your country be equivalent to having a slave mentality? I think you need help in how to correctly interpret the sad history of the age of slavery.

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  3. @KCI
    and we think Zambia is a poor country…how can someone invest billions in a country where people survive on less than US$1 a day…..so technically we have all the wealth but we don’t know how to use it or we are good at making other countries rich…like the Indians always say ” ndalama ni zathu…Zambia ni yanu”…

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  4. Superb article.
    Well done to the author and LT.
    That’s the sort of articles you should have.
    It is well written and above all informative.
    But yet you have the usual ignorant crap writers in the comments section.

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  5. Good one indeed we want our Miners to be paid a living wage and not peanuts unlike the crooks who were there before

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